GBP/USD: Brexit-fuelled rise at risk to long bets and resistance
The pound received a boost as 'no-deal' Brexit fears cooled, but a rise in net long bets coupled with chart resistance clouds GBP/USD upside potential.
Pound sterling IG client sentiment talking points
- The pound gained after 'no-deal' Brexit fears cooled
- IG client sentiment is showing a GBP/USD bearish bias
- Will falling resistance maintain the dominant downtrend?
GBP/USD IG client sentiment outlook - bearish
The pound has been cautiously rising versus the US dollar on headlines that have helped to cool worries about a 'no-deal' Brexit to a certain extent. This is as UK Prime Minister Boris Johnson and European Commission president Jean-Claude Juncker prepare to discuss options on replacing the Irish backstop, a sticking point in withdrawal talks. But what do positioning and technical analysis have to say for GBP/USD?
We typically take a contrarian view to crowd sentiment, and the fact traders are net-long GBP/USD suggests that prices may continue falling. However, since 9 August the percentage of traders biased to the upside has declined from about 80% to 70%. Unsurprisingly, the currency pair climbed about 2%. But recent changes in IG client sentiment are now offering a stronger bearish contrarian trading bias.
As of 27 August, traders are further net-long than the previous day and week respectively. If interest in going long sterling increases, we may see the currency resume weakness against the US dollar. On the flip side of the spectrum, should net-long GBP/USD positioning continue unwinding, there may be more room for the currency pair to recover.
Learn more about how forex trading works
GBP/USD client positioning
Pound sterling technical analysis – will trend-defining resistance hold?
Meanwhile, on the daily chart, GBP/USD has run into trend-defining falling resistance from late April. This has been keeping the dominant down move intact after it was tested in June and July. If it holds, we may see GBP/USD turn lower towards near-term support at $1.2109, which is around the March 2017 low. Clearing it opens the door to testing 2019 lows which are a part of the psychological barrier between $1.1950 and $1.2018.
This area of support could be traced back to the lows witnessed in 2016 and 2017. A turn lower in the currency is also possible amid negative relative strength index (RSI) divergence which shows fading upside momentum. Yet, when it comes to technical analysis, be mindful that past performance is not indicative of future results. Confirming a close above falling resistance from April - the red parallel lines on the chart below - opens the door to testing the next area of interest at $1.2366.
GBP/USD daily chart
IGA, may distribute information/research produced by its respective foreign affiliates within the IG Group of companies pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the research is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, IGA accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact IGA at 6390 5118 for matters arising from, or in connection with the information distributed.
The information/research herein is prepared by IG Asia Pte Ltd (IGA) and its foreign affiliated companies (collectively known as the IG Group) and is intended for general circulation only. It does not take into account the specific investment objectives, financial situation, or particular needs of any particular person. You should take into account your specific investment objectives, financial situation, and particular needs before making a commitment to trade, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit.
No representation or warranty is given as to the accuracy or completeness of this information. Consequently, any person acting on it does so entirely at their own risk. Please see important Research Disclaimer.
Please also note that the information does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. Any views and opinions expressed may be changed without an update.
Start trading forex today
Trade the largest and most volatile financial market in the world.
- Spreads start at just 0.6 points on EUR/USD
- Analyse market movements with our essential selection of charts
- Speculate from a range of platforms, including on mobile
Live prices on most popular markets
- Forex
- Shares
- Indices
See more forex live prices
See more shares live prices
Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 15 mins.
See more indices live prices
Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 20 mins.
